One of the questions I have been getting most often is about a housing bubble- Are we in one? When will it pop? What should we expect? The answer is NO, absolutely not. Our current market is SO different than 2006, and I want to try and stop any fears before they start. Here's what makes our current market different, among other things:
1.Housing Supply is limited this time
From 2006-2008, the housing inventory actually increased (roughly 14,037 homes on the market, locally), which is considered a buyers market, but home prices continued to increase, too. Right now, housing inventory stands at a historic low (3,115 homes on the market, locally), so it's absolutely a seller's market. If supply is low, and demand is high, prices naturally increase.
2. Housing demand is real
Leading up to the mortgage crisis, banks and lenders were giving loans out to anyone and everyone. There was little documentation needed, and there were many other unscrupulous factors at play- all created by human error. As the dust settled, many new laws and requirements were put into place, making it a requirement that buyers are educated and well-qualified. As an example, the Mortgage Credit Availability Index shows that the higher the index, the easier it is to get a mortgage; the lower the index, the more difficult it is. Leading up to the crisis, in the housing boom, the index was just below 400. In 2006, at the height, the index hit an all-time high of over 868. Again, just about anyone could get a mortgage. Today, the index stands at 122.5, which is well below even the pre-boom level. Lender standards are tightening, and this leaves little room for a housing bubble explosion.
3. Households have equity
In addition to rising home prices and buyer demand, cashing in on your hard-earned equity is a great reason to consider selling right now. During the housing boom, it wasn’t just buyers who got caught up in the frenzy. Existing homeowners started using their homes like ATM machines. From 2005-2007, Americans pulled out $824 BILLION dollars worth of equity from their homes in an attempt to refinance their home. This left many homeowners with little to no equity left in their home when the crash happened, which led to avalanche of foreclosures we know from that time. Banks learned a valuable lesson, therefore cash-out refinances are 1/3 of what they were leading up to the crash. 56.7% of all homes in this country have a minimum of 50% equity.
The last year has made us all into professional worriers, and it's hard not to get swept up in what "everyone" is saying about the real estate market. However, it's so important to know the truth about your largest investment, and to make the smartest financial decisions for yourself armed with this knowledge!
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